Welcome!

Release Management Authors: Pat Romanski, Elizabeth White, David H Deans, Liz McMillan, Jnan Dash

Related Topics: @CloudExpo, Release Management

@CloudExpo: Article

Cloud Economics: Microsoft, Google & Amazon

The numbers illustrate Amazon's competitive strategy in cloud computing

Sridhar Vembu's blog

Yesterday Microsoft launched its Azure cloud platform, so it is time for another spreadsheet. To properly compare Microsoft, Google and Amazon, I am using the gross profit (instead of revenue) and net profit numbers. Gross profit is, in some sense, the real revenue of a company after paying its outside suppliers; gross profit is what is available to pay its employees, pay the rent, and so on. For a software company, the cost of goods sold is close to zero, so most of the revenue is gross profit. But for a retailer, as much as 70-80% of revenue goes to its suppliers, so gross profit is the better measure of the economic productivity the company achieves. The numbers in the table use rough annualized estimates based on the most recent quarter.

Do you notice the dramatic difference? Google and Microsoft are in another planet altogether compared to Amazon. Google has practically the same headcount as Amazon, yet drives three times the gross profit. The numbers really illustrate Amazon's competitive strategy in cloud computing; to quote Nick Carr:

Bezos goes on to note that Amazon's retailing operation is "a low gross margin business" compared to software and technology businesses, which "tend to have very high margins." The relatively low profitability of the retailing business gave Amazon the incentive to create a highly efficient, highly automated computing system, which in turn could become the foundation for a set of cloud computing services that could be sold at low enough prices to attract a large clientele. It also made a low-margin utility business attractive to the firm in a way that it isn't for a lot of large tech companies who are averse to making big capital investments in new, low-margin businesses.

"On the surface, superficially, [cloud computing] appears to be very different [from our retailing business]," Bezos sums up. "But the fact is we've been running a web-scale application for a long time, and we needed to build this set of infrastructure web services just to be able to manage our own internal house."

Microsoft's announcement is interesting from a technology point of view, but it is hard to see how the economics would work for them against Amazon. It is very hard for companies to go down the value chain for growth, so I am skeptical Microsoft would easily accept Amazon-like margins. On the other hand, for Amazon, cloud services have to deliver only a little higher margin than retail to be well worth the investment. That is not a tough hurdle, because retail is one of the toughest businesses out there.

More Stories By Sridhar Vembu

Sridhar Vembu is CEO of ZOHO Corp. (formerly AdventNet Inc.), the company behind the Zoho suite of online applications. Learn more about Zoho at www.zoho.com, follow us on Twitter at @zoho and contact Sridhar at [email protected]

Comments (0)

Share your thoughts on this story.

Add your comment
You must be signed in to add a comment. Sign-in | Register

In accordance with our Comment Policy, we encourage comments that are on topic, relevant and to-the-point. We will remove comments that include profanity, personal attacks, racial slurs, threats of violence, or other inappropriate material that violates our Terms and Conditions, and will block users who make repeated violations. We ask all readers to expect diversity of opinion and to treat one another with dignity and respect.


IoT & Smart Cities Stories
Moroccanoil®, the global leader in oil-infused beauty, is thrilled to announce the NEW Moroccanoil Color Depositing Masks, a collection of dual-benefit hair masks that deposit pure pigments while providing the treatment benefits of a deep conditioning mask. The collection consists of seven curated shades for commitment-free, beautifully-colored hair that looks and feels healthy.
The textured-hair category is inarguably the hottest in the haircare space today. This has been driven by the proliferation of founder brands started by curly and coily consumers and savvy consumers who increasingly want products specifically for their texture type. This trend is underscored by the latest insights from NaturallyCurly's 2018 TextureTrends report, released today. According to the 2018 TextureTrends Report, more than 80 percent of women with curly and coily hair say they purcha...
The textured-hair category is inarguably the hottest in the haircare space today. This has been driven by the proliferation of founder brands started by curly and coily consumers and savvy consumers who increasingly want products specifically for their texture type. This trend is underscored by the latest insights from NaturallyCurly's 2018 TextureTrends report, released today. According to the 2018 TextureTrends Report, more than 80 percent of women with curly and coily hair say they purcha...
We all love the many benefits of natural plant oils, used as a deap treatment before shampooing, at home or at the beach, but is there an all-in-one solution for everyday intensive nutrition and modern styling?I am passionate about the benefits of natural extracts with tried-and-tested results, which I have used to develop my own brand (lemon for its acid ph, wheat germ for its fortifying action…). I wanted a product which combined caring and styling effects, and which could be used after shampo...
The platform combines the strengths of Singtel's extensive, intelligent network capabilities with Microsoft's cloud expertise to create a unique solution that sets new standards for IoT applications," said Mr Diomedes Kastanis, Head of IoT at Singtel. "Our solution provides speed, transparency and flexibility, paving the way for a more pervasive use of IoT to accelerate enterprises' digitalisation efforts. AI-powered intelligent connectivity over Microsoft Azure will be the fastest connected pat...
There are many examples of disruption in consumer space – Uber disrupting the cab industry, Airbnb disrupting the hospitality industry and so on; but have you wondered who is disrupting support and operations? AISERA helps make businesses and customers successful by offering consumer-like user experience for support and operations. We have built the world’s first AI-driven IT / HR / Cloud / Customer Support and Operations solution.
Codete accelerates their clients growth through technological expertise and experience. Codite team works with organizations to meet the challenges that digitalization presents. Their clients include digital start-ups as well as established enterprises in the IT industry. To stay competitive in a highly innovative IT industry, strong R&D departments and bold spin-off initiatives is a must. Codete Data Science and Software Architects teams help corporate clients to stay up to date with the mod...
At CloudEXPO Silicon Valley, June 24-26, 2019, Digital Transformation (DX) is a major focus with expanded DevOpsSUMMIT and FinTechEXPO programs within the DXWorldEXPO agenda. Successful transformation requires a laser focus on being data-driven and on using all the tools available that enable transformation if they plan to survive over the long term. A total of 88% of Fortune 500 companies from a generation ago are now out of business. Only 12% still survive. Similar percentages are found throug...
Druva is the global leader in Cloud Data Protection and Management, delivering the industry's first data management-as-a-service solution that aggregates data from endpoints, servers and cloud applications and leverages the public cloud to offer a single pane of glass to enable data protection, governance and intelligence-dramatically increasing the availability and visibility of business critical information, while reducing the risk, cost and complexity of managing and protecting it. Druva's...
BMC has unmatched experience in IT management, supporting 92 of the Forbes Global 100, and earning recognition as an ITSM Gartner Magic Quadrant Leader for five years running. Our solutions offer speed, agility, and efficiency to tackle business challenges in the areas of service management, automation, operations, and the mainframe.